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Frytown, Iowa | When price is approaching support or resistance lines... And price is in a channel. Which lines do you buy and which do you short?
If the resistance line is 10 and price is bouncing in between 6 and 10... Price is at 9.75 and rising...
You have projected that if the resistance line is broken that price has a good chance of heading up to 12....
You have a 2 dollar upside and a potential 4 dollar down side.
Price is going to move faster than you can react at the resistance line... Would you buy with stops below turning short if the resistance line holds or would you short with stops above the resistance line in case it breaks through...
My thoughts are that if price breaks through.. It will zoom up close to its projected next resistance of 12 hence you won't have time to react. Where as if you short, your stop will be above the resistance line resulting in a (let's say) 1.75 profit once you get your bid in above your stop.
If price moves down and you bought with lower stops you still have time to get stopped out and short resulting in a potential 3.75 profit as price has potential to move down to 6
Hopefully this is making sense. It would seem to me that you would take the position of least gain to even out profits of both sides. Is this correct?
If you bought with stops below... And price zoomed up to 12 you would have a profit of 2.25 where if you bought with stops at 9.75 and price hit resistance and dropped with a short bid at 9.70 you would have a loss of .05 and a potential gain of 3.70
Edited by frytownfarmer 8/17/2013 13:20
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Trading support and resistance lines...
